Posts tagged with: Late-2000s financial crisis

Greece has had to deal with a very uncertain economic outlook over the past decade or so, but now it’s getting downright ugly. Greece owes over $1 billion this month in debt repayments, along with pensions, government salaries and other obligations. They likely don’t have the money.

The rapidly deteriorating Greek economy makes its already daunting debt pile even harder to manage, a key point of contention between Athens and its lenders. The [European Commission’s] latest forecast reckons that Greece’s debt will reach a whopping 180% of GDP this year, much higher than expected in recent months. Greece’s most recent bailout agreement called for its debt-to-GDP ratio to fall to 110% by 2022, which looks nearly impossible without some sort of restructuring, write-down, or default.

The Eurozone debt crisis is entering its third year. The original objective of the official sector’s response to the crisis — containment — has failed. All of the countries of peripheral Europe are now in play; three of them (Greece, Ireland and Portugal) operate under full official sector bailout programs.

The prospect of the crisis engulfing the larger peripheral countries, Spain and Italy, has sparked a new round of official sector containment measures. These will involve active intervention by official sector players such as the European Central Bank in order to preserve market access for the affected countries.

This paper surveys the options now facing the sovereign debtors and their official sector sponsors. It concludes that there are no painless or riskless options. In the end, the question may come down to this — to what extent will the official sector sponsors of peripheral Europe be prepared to take on their own shoulders (and off of the shoulders of private sector lenders) a significant portion of the debt stocks of these countries during this period of fiscal adjustment? (more…)